European liquidity could be bigger than you think

When compared to the US stock markets, Europe is often portrayed as lacking liquidity, volumes and market depth. Although no one is denying the US has by far the most liquid and active stock markets in the world, the way liquidity is understood and presented can have an influence on how a market is perceived and, in turn, performing.

Contrary to the US markets, where investors would be considering OTC¹ activity as addressable liquidity, investors tend to look at Europe through the prism of its on venue liquidity, and sometimes even only the activity executed on the primary venue of listing. With dark trading and periodic auctions books accounting for 10.45% of all reported notional traded in Q1 (18% of continuous trading turnover traded), it is difficult to argue that such liquidity² should be ignored. Furthermore, off venue liquidity is routinely dismissed by market participants, despite the consensus that it includes liquidity that is reasonably accessible to the wider market.

In this paper, we look at the reported volumes for BEPACP³ by category and try to assess which part of the off venue liquidity is standard and reproductible enough to be considered as addressable by most market participants.

The chart looks at all reported volumes, on and off venue.

One category “OBOE NPFT⁴” stands out on the off book on exchange liquidity, standing at EUR 16.8bn ADV for April (18% of all reported volumes). This activity is mostly driven by clearing activity of off venue executions that occurred earlier in the day. It should be entirely removed from any liquidity analysis.

Once removed, on venue activity accounts for ~67% of the total notional traded, standing now at EUR 77.7bn ADV.

Our premise is to challenge the view that off venue liquidity should be removed from any assessment of European liquidity. Although off venue market share grew materially post MiFID II, market participants quickly realized it was more due to technical trades (such as give in/give up or novation of bi lateral transactions) becoming reportable. This change introduced material issues in determining whether or not a print on the tape was price forming and/or information bearing.
Subsequent regulatory adjustments in both the EU and the UK brought much needed clarity on the nature of reported trades, by providing more granular post trade flags and by removing some of the technical transactions from the tape.

In parallel, there should be consideration of whether, in light of the recent growth and development of Systematic Internalisers alongside the further electronification of bilateral liquidity, these sources of liquidity should be considered at least accessible (if not addressable) to the wider market.

Acknowledging that not all bi lateral liquidity is the same, we narrow our definition of addressable liquidity to off venue transactions reported without any specific price conditions, meaning “standard” SI/OBOE/XOFF trades, not linked to a specific benchmark or specific type of transactions.

The picture now looks very different. From an addressable ADV of EUR 52bn in April 2025 if you only account for lit and dark venues, you now potentially could tap into an extra EUR 15.9bn ADV if you consider the price forming part of the off venue liquidity.

Although progress has undeniably been made on reported volumes, several grey areas remain.

First and foremost, the industry and policymakers should work together to complete the process of ‘cleaning’ the tape. The EU is expected to take a significant step in this direction by granting an exemption for give-in/give-up⁵ transactions, following the UK’s lead in 2024.

Additionally, regulators should consider removing non-price forming transactions (NPFTs) from the off book/on exchange reporting obligations to improve data integrity.

Regarding the estimation of price forming bilateral activity, introducing a specific flag for off venue closing activity, similar to the UK’s “CLSE” tag, would enable a more accurate assessment of risk liquidity provision during closing auctions⁶.

Finally, reintroducing a degree of qualitative and quantitative reporting for bilateral liquidity could prove extremely helpful for investors. Drawing inspiration from frameworks like FINRA’s weekly reports or SEC Rule 605/606 filings would provide market participants with the tools to estimate and assess liquidity in a more holistic way: not just volumes executed on trading venues, whether dark or lit, but across the entire landscape.

¹ US OTC activity includes ATSs and single dealer platform activity. They usually account for ~60% of the notional executed.

² Off Venue liquidity in the EU can be pure OTC (MIC = XOFF), Off book on Exchange (OBOE, transactions privately negotiated and reported on a trading venue) or executed by a Systematic Internaliser (SI, similar to US single Dealers, MIC = “SINT”)

³ BEPACP The Cboe Europe All Companies index is comprised of all the issuers resident in all Cboe Europe Single Country Indices regardless of the currency of issuers’ primary listing. Issuers in Mid-Cap and Small Cap indices, e.g. Cboe DEM 50, Cboe UK 250 and Cboe UK Small Companies, are ineligible for inclusion in this index.

⁴ OBOE NPFT encompasses all transactions that are negotiated off book but published on exchange and flagged as “NPFT” (Non-Price Forming Transactions). These include trades such as securities financing transactions and transactions executed for the purposes of clearing and settlement, in accordance with EU Delegated Regulation 2017/590 (RTS 22), Article 2(5).

⁵ Although looking at the data, most of the booking for give-in/give up are happening In the UK and would already have been removed from the tape from 29th of April 2024, following the FCA policy statement PS23/4 improving equity secondary markets: https://www.fca.org.uk/publications/policy-statements/ps23-4-improving-equity-secondary-markets

⁶ Our analysis relies solely on the CLSE flag (mandatory in the UK but industry driven in the EU). As a result, our estimates of bilateral liquidity during the close are likely understated relative to actual activity.